Participation in export markets improves productivity. That’s not the latest tongue twister; it’s the finding of a recent study. Can you capitalize on it?
Yes, exporting is good for you. According to the study, published in a recent edition of the Canadian Journal of Economics, Canadian manufacturers who export accounted for almost three-quarters of productivity growth in the 1990s, even though they accounted for less than 50% of employment. For the period 1990 to 1996, exporters saw their average productivity grow by 2.7% annually; new exporters experienced a productivity rise by 3.7% per year. Firms that increased their export exposure accounted for approximately 30% of total productivity growth. In contrast, non-exporters and companies that quit exporting experienced a productivity decline.
Productivity gains were greater for domestic-controlled plants and young plants entering export markets. (These groups are more likely to benefit from information gained during exposure to foreign markets, because their information acquisition systems are less fully developed than either older or foreign-owned plants.)
Some of these changes have become larger over the last thirty years as trade liberalization has intensified.
The report says that firms that are already more productive and innovative are more likely to begin exporting, but it also suggests that the increased international competition faced by exporters forces them to become even more innovative, efficient and productive, particularly through new capital investment. According to the study: “Entrants to export markets have to develop superior performance prior to entry and are rewarded with even stronger performance after they penetrate export markets.”
So what does all this mean? “Canadian firms, and the Canadian economy, can follow an alternative path to improved productivity growth performance — through exporting,” says Glen Hodgson, vice president and deputy chief economist of Export Development Corp. (EDC). “Canadian firms can raise their own productivity, and ultimately that of the nation, by committing themselves to an export-led growth strategy wherever possible. Meeting the competition around the world will compel Canadian firms to seek out new business concepts, techniques, products and relationships that keep them on the cutting edge. And an export-led productivity strategy means that free trade on all available fronts must remain a top-level policy priority, starting with maintaining access to the U.S. market.”
The study, “Export-market participation and productivity performance in Canadian manufacturing”, by John R. Baldwin and Wulong Gu, can be found online at http://www.economics.utoronto.ca/trefler/workshop/Gu.doc
